The Deployment of Knowledge Sharing Mechanisms in Service MNCs The Impact of Industry and Culture Tanja Seppänen and Christine Dalen Supervisor: Paul Gooderham Master of Science in Economics and Business Administration, International Business NORWEGIAN SCHOOL OF ECONOMICS This thesis was written as a part of the Master of Science in Economics and Business Administration at NHH. Please note that neither the institution nor the examiners are responsible − through the approval of this thesis − for the theories and methods used, or results and conclusions drawn in this work. Norwegian School of Economics Bergen, Spring 2013
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The Deployment of Knowledge Sharing Mechanisms in Service
MNCs
The Impact of Industry and Culture
Tanja Seppänen and Christine Dalen
Supervisor: Paul Gooderham
Master of Science in Economics and Business Administration,
International Business
NORWEGIAN SCHOOL OF ECONOMICS
This thesis was written as a part of the Master of Science in Economics and Business
Administration at NHH. Please note that neither the institution nor the examiners are
responsible − through the approval of this thesis − for the theories and methods used, or
results and conclusions drawn in this work.
Norwegian School of Economics
Bergen, Spring 2013
I
Abstract
Authors Tanja Seppänen and Christine Dalen
Title The Deployment of Knowledge Sharing Mechanisms in Service
MNCs – The Impact of Industry and Culture
Date 20 June 2013
Degree Master of Science in Economics and Business Administration
Supervisor Paul Gooderham
Objectives
The purpose of this thesis is to study the mechanisms used by service MNCs to promote
knowledge sharing (KS). More specifically, this thesis studies the impact of industry and
culture on social capital (SC) and the role of SC in KS. The objective is to identify the most
effective knowledge governance mechanisms to promote knowledge sharing in the banking
and consulting industries.
Summary
Our research model consists of Knowledge Governance Approach (KGA) and SC which we
use to analyze knowledge sharing mechanisms in the banking and consulting industries.
Furthermore, we study the impact of industry and culture on KS by interviewing DNB,
BES, Millennium bcp, IBM and Accenture in Norway and Portugal. Based on the
interviews we develop a comparative analysis between the banking and consulting
companies in two cultural contexts.
Conclusion
Based on our empirical research, the findings suggest that industry determines KS in service
MNCs more than culture. The banking industry uses primarily hierarchical mechanisms to
promote KS across their operations while the consulting industry favors social mechanisms
due to their network organization structure. The market-based incentives are not widely
adopted in the sole promotion of KS.
Keywords knowledge management, knowledge sharing mechanisms, social
1. Knowledge sharing (KS) Value Mutual and one-sided KS Sharing systems
4. Industry Characteritics (banking, consulting)
5. National Culture Characteristics (Norway, Portugal) Organizational Culture
Figure 1.2. Research model on the determinants of knowledge sharing mechanisms
Besides industry and culture, there are national socioeconomic conditions which may affect
social capital and knowledge sharing. However, the socioeconomic aspect is beyond the
scope of this paper and, therefore, we do not address it in the model.
1.4 Structure of the Thesis
After the introduction in Chapter 1, the thesis continues with a literature review on the
existing research about knowledge sharing, social capital, and knowledge governance
mechanisms in MNCs. We also present industry and culture characteristics in banking and
consulting and provide a summary of the literature review in Chapter 2. Then, based on the
literature review, we develop a research model for the study in Chapter 3. Followed by the
methodology, we present the findings of our empirical research and conclude Chapter 4 by
summarizing the main findings. The findings are followed by a discussion in Chapter 5 in
accordance to the research questions. Besides the research questions, we state the managerial
implications of the thesis and give suggestions for future research. Finally, we present a
conclusion of the study in Chapter 6.
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2. Literature Review
This chapter introduces existing research about knowledge sharing in service MNCs. We
start backwards with the research model in figure 1.2: first, we cover the grounds for
knowledge sharing (1) by presenting the types and value of organizational knowledge,
transfer capacity and intensity as well as sharing systems. Then, we present the social capital
theory (2) followed by the knowledge governance approach (3). We also shed light on the
main differences between the banking and consulting industries (4) and address the cultural
aspects (5) in knowledge management. Finally, we give a summary of the main themes
covered in the literature review.
2.1 Grounds for Knowledge Sharing
With increasing knowledge reservoirs in today‟s dynamic business environment, a frequent
question in strategic management is how to gain and sustain competitive advantage (Collis
1995). Companies need to possess a well-designed knowledge management system if they
are to extract value from the information sources and incorporate the key knowledge
effectively into decision-making (Loye 2008). The internal analysis of the organization is
highlighted while external industrial factors should not be omitted either (Collis 1995, cited
in Lee 2001).
Knowledge management can be viewed as a systematic process which aims at improving the
way information is found, selected, organized, distilled, and presented (Herschel and Jones
2005). Lee (2000: 324) defines knowledge management as a process of capturing, storing,
sharing, and using knowledge which constitutes to gaining and sustaining competitive
advantage. Knowledge management can also be seen as integration of information assets,
such as documents, policies, procedures, as well as the expertise and experience of
employees; knowledge management creates a platform for utilizing the aggregate knowledge
for problem solving, dynamic learning, strategic planning, and decision-making (Hameed
2004).
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2.1.1 Sharing Tacit and Explicit Knowledge
Knowledge sharing is an essential dimension of knowledge management. It consists of
activities of transferring or disseminating knowledge from one person, group or organization
to another (Lee 2001). However, knowledge being rather an abstract word without a precise
definition, many scholars have approached the term by dividing knowledge into tacit
knowledge and explicit knowledge. Tacit knowledge is learned by experience and
communicated through metaphor and analogy. Explicit knowledge can be learned from and
presented in manuals and procedures (Nonaka and Takeuchi 1995). The knowledge types
may receive varying level of attention in different cultures; e.g. the US managers have been
found to emphasize explicit knowledge, whereas the Japanese managers focus on tacit
knowledge.
Explicit knowledge can be transmitted through any formal or systematic language (Polanyi
1966; Evans & Easterby-Smith 2000). However, explicit knowledge represents only a small
share of knowledge embedded in an employee since human beings acquire and update
knowledge continuously by creating and organizing their own experiences. In comparison to
explicit knowledge, tacit knowledge is context specific and personal, which makes it difficult
to be communicated and transmitted (Fischer and Mandell 2009).
A great debate encircles the relationship of tacit and explicit knowledge. Some researchers,
such as Cook and Brown (1999), argue that they are separate from each other, whereas e.g.
Nonaka and Takeuchi (1995) suggest that tacit and explicit knowledge complement each
other mutually. The different views on the possible interdependency create an important
distinction to be considered in understanding knowledge sharing and knowledge
management systems. Yet, as Cook and Brown (1999: 385) outline further, tacit and explicit
knowledge may be separate entities but they facilitate the acquisition of each other “in that
one can apply one‟s tacit knowledge to generate explicit knowledge and vice versa.”
In their research about theorizing and representing organizational learning and knowledge
management, Evans and Easterby-Smith (2000) point out that understanding the dynamics of
knowledge sharing in organizations is a sum of several implications. Regarding tacit and
explicit organizational knowledge, the researchers argue that they are “similar to the two
sides of a coin rather than separate entities or different ends of a continuum.” It is also
claimed that the creation of organizational knowledge consists of processes such as
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transformation and amplification (Nonaka and Takeuchi 1995). Moreover, there is also a
complex process called „the generative dance‟ which refers to “a dynamic process of shaping
and reshaping knowledge through interactions with the world around us.” Furthermore, the
generative dance principle suggests that application of tacit and explicit knowledge
constitutes to the creation of new knowledge (Evans and Easterby-Smith 2000). Similar
findings can be derived from the research of Nonaka and Takeuchi (1995:61) who state that
the interdependency of tacit and explicit knowledge allows creation and extension of new
knowledge.
2.1.2 Knowledge Transfer Capacity
The knowledge sharing process has two basic dimensions: in-transfer capacity and out-
transfer capacity. The in-transfer capacity describes the ability and willingness to transfer
knowledge between the HQ and subsidiaries. More specifically, the in-transfer capacity
refers to the subsidiaries located in less developed markets which have a varying absorptive
capacity to receive knowledge from the parent. The in-transfer capacity can be divided into
four levels and as summarized in figure 2.1, the shift from one level to the next level requires
investments in knowledge management practices (Leonard-Barton 1995; cited in Gooderham
and Nordhaug 2003: 262-264).
Figure 2.1. The levels of the in-transfer capacity in the subsidiary. (An extract from
Gooderham and Nordhaug, 2003)
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The out-transfer capacity refers to the transferor‟s ability to share explicit knowledge and
tacit knowledge. A part of the out-transfer capacity in explicit knowledge is the ability to
codify and disseminate information e.g. in manuals or procedures. Some companies are
better at articulating explicit knowledge than the others which could be a result of a well-
established knowledge sharing policy (Gooderham and Nordhaug 2003).
However, what makes out-transfer of tacit knowledge difficult is its idiosyncratic nature.
Tacit knowledge is often a result of organizational routines which have been developed
through individual interaction. Therefore, there must be an established pathway to maintain
and develop social ties between the transferor and recipient. Such a pathway could be
intranet, which enables smooth knowledge sharing between MNC units. Nevertheless, the
sole existence of the system does not guarantee knowledge sharing but employees need
incentives to use the system and transfer knowledge actively (ibid).
2.1.3 Knowledge Intensity
The role of knowledge sharing can hardly be underestimated in any company but in the
knowledge-based enterprises (KBE) there are fewer constraints on knowledge transactions
than in traditional organizations. KBEs are found to support a fluent flow of knowledge
because the companies have recognized the impact of an efficient knowledge sharing system
on their existence. They are often characterized by a unique culture with flexibility.
Successful KBEs seem to support “knowledge exchange in a very broad manner, not
necessarily for selected types of knowledge or for specific and well-defined objectives”
(Geisler and Wickramasinghe 2009).
Although the extensive in-transfer capacity for tacit knowledge (see figure 2.1.) represents
an ideal in-transfer capacity for many companies, it is worth considering the threat of
opportunistic behavior when knowledge sharing is bi-directional. For example, in the lack of
trust, a subsidiary that has evolved into a service innovator, may not disclose everything to
the HQ and other subsidiaries (Gooderham and Nordhaug 2003: 267). The reason could be a
fear of losing some of the key competencies and, therefore, the status as an innovator. This
kind of behavior reflects “knowledge is power” thinking which might cause serious
difficulties in knowledge sharing (Peng 2009: 366). To overcome or at least to decrease
possible reluctance to share information, the company can encourage individuals to
communicate by showing positive impacts of knowledge sharing on financial or productive
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performance. By doing this the company can also promote the pursuit of corporate-level
interests (Casher et al. 2003:19).
2.1.4 Sharing Systems
Knowledge sharing consists of many tools and techniques that contribute to organizational
performance. For example, knowledge and content management applications and
technologies enable searching and organizing accumulated documents and data that can
create a significant pool of valuable knowledge especially for large MNCs. Aggregated
business reports, forms, e-mails, spreadsheets, contracts, articles etc. contain a lot of precious
information for business development and problem solving (Herschel and Jones 2005). To
store and retrieve information from these sources, efficient tools for data warehousing are a
necessity.
A well-designed knowledge management system can become a major contributor in pursuit
of competitiveness. Voelpel et al. (2005) present a case study about Siemens, the Munich-
based global electronic giant, and the way they successfully implemented a global
knowledge sharing system called ShareNet. The five steps in the creation of ShareNet are
presented in table 2.1.
Siemens‟s strategy for organizational and cross cultural challenges can offer instructive
insights to other organizations which seek to create a global knowledge sharing system. The
case leads to a learning outcome that not only the development phase of the system is
important but also the incentive system to motivate employees to use it. The usage might not
only include sharing alone but also giving feedback and ideas for improvement.
Furthermore, what remains crucial is the trust between the operational units (Voelpel et al.
2005).
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Actions Description
Defining the concept The knowledge sharing system at Siemens did not only include explicit knowledge, but also individual’s tacit knowledge. The new system had to be designed to integrate components, such as a knowledge library, forum for urgent requests, and platforms for knowledge sharing that would include discussion groups for certain topics and live chat rooms.
Global rollout While creating the system, the core development team obtained cross cultural information from the users far away from the HQ in Munich to avoid the usual Siemens practice of spreading initiatives from the HQ to dominate the process.
Bringing momentum into the system
People being skeptical, the system did not receive an enthusiastic reception from everyone but there were many excuses not to use it. However, to motivate people to adopt the knowledge sharing system, Siemens introduced incentives, such as a bonus system, in which they rewarded the country unit for sharing.
Expanding group-wide
Siemens took the transnational strategy of being both globally integrated and locally responsive. The strategic direction of ShareNet was centrally maintained from the HQ in Munich, but the subsidiaries could help to identify the culturally embedded knowledge in their locations.
Consolidating and sustaining performance
Without evaluation of the quality and usefulness of information, people started sharing knowledge without references. Realizing the financial incentive would not fulfill its purpose in an intended way the company altered the reward program and established an evaluation system.
Table 2.1. Development steps of ShareNet at Siemens (Source: Voelpel et al. 2005)
2.2 Social Capital in Knowledge Sharing
The foundation of social capital is the behavior of humans within and between organizations.
Personal relationships developed through human interaction over time provide a basis for
networked organization activities which help to build trust further. Unique networks with
social ties in the organization create a platform for collective actions and make the exchange
of resources more fluent (Huotari and Iivonen 2004:11-12).
2.2.1 Social Capital Theory
Nahapiet and Ghoshal (1998; cited in Huotari and Iivonen 2004:11) define social capital as
“the sum of the actual and potential resources embedded within, and available through and
derived from the network of relationships possessed by an individual or social unit. Social
capital thus comprises both the network and the assets that may be mobilized through that
network.” The researchers state that social capital contributes to the efficiency of knowledge
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sharing because it encourages cooperative behavior. Encouraging cooperation is also likely
to reduce the threat of opportunistic behavior. As proposed by Nahapiet and Ghoshal (1998),
differences between firms in terms of knowledge sharing may represent differences in their
ability to create and utilize social capital. Social capital can be divided into three dimensions:
1. Relational
2. Cognitive
3. Structural
The relational dimension includes trust, norms, and identity developed over time in
relationships. The cognitive dimension refers to shared representations, interpretations, and
systems of meaning, e.g. a shared vision. The structural dimension is related to social
interaction, such as density and hierarchy (Nahapiet and Ghoshal 1998).
MNCs operate in a demanding context in which developing social capital promotes
knowledge flows by eliminating risks that could result from cultural, institutional and
physical distance factors (Gooderham et al. 2010). Besides culture, institution, and distance,
the lack of motivation bears a barrier. For example, given the risk of asymmetric information
between the MNC top management and its focal subsidiary, it might be in the subsidiary‟s
self-interest not to transfer knowledge, even if it would benefit the whole organization. An
additional barrier can originate from the difficulty of transferring idiosyncratic, specific, tacit
and non-codified knowledge. These types of knowledge might affect the recipient‟s ability
or willingness to absorb new information and might require costly supportive actions;
especially when information is context specific (Björkman et al. 2004). Besides costly
supportive actions, many empirical studies have found that knowledge transfer is notably
more fluent when there is a close relationship between the sender and receiver (Bresman et
al 1999; Gupta Govindarajan 2000; Lyles and Salk 1996; Simonin 1999 cited in Gooderham
et al. 2010). If the sender and receiver are located in distant units, establishing close
relationships might be difficult, if not impossible.
Social capital theory can be applied to identify dynamic and operational capabilities in the
organization. A number of sources (Teece et al. 1997; Cepeda and Vera 2007; Gooderham
2006) state that dynamic capabilities play an important role in the process of knowledge
transfer in MNCs. Dynamic capabilities allow the organization to “integrate, build, and
reconfigure internal and external competencies to address rapidly changing
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environments” (Teece et al. 1997:516). Operational capabilities refer to the operational
functioning of the firm, including both people and line processes. They are a basis for
organization‟s current income while dynamic capabilities pursue to create sustainable
competitive advantage. Dynamic capabilities relate “to the modification of operational
capabilities and lead, for example, to changes in the firm's products or production processes”
(Cepeda and Vera 2007:427).
2.2.2 Relational Dimension
The relational dimension can be described as a behavioral approach to social capital which is
shaped by personal relationships employees have developed over time through social
interaction. The type of relationship, such as respect and friendship, influences behavior of
the individual and drives them to fulfill social motives. Social motives could be e.g.
sociability, approval, and prestige which are influenced by relational factors, such as trust,
norms, expectations, sanctions, and obligations (Nahapiet and Ghoshal 1998). The value of
social capital can be considered from the relational perspective: social capital can hardly be
traded because personal relations and obligations do not pass automatically from one
employee to another (ibid).
The relational dimension in social capital can be enhanced by collaboration and teamwork
which require trust as highlighted by Huotari and Iivonen (2004:8-15). They denote the
essential role of trust in knowledge and information management and present the basic
features of trust in three points. Trust is first of all based on expectations and interactions. It
is common to assume that trust is greatly dependent on expectations of other people‟s
willingness and ability to meet our requirements. When we learn to understand other people
and their expectations through interaction, we develop and strengthen trust.
Second, trust is manifested in people‟s behavioral patterns. In situations where we are
dependent on each other, trust becomes a critical factor. Different levels of trust can lead to
different levels of resource exchange and information flows. A high level of trust may
increase employees‟ ability to cope with complexity and diversity, and that may increase the
potential to combine knowledge for innovation (Huotari and Iivonen 2004:12). For example,
“trust plays an important role in turning personal knowledge into organizational knowledge”
and in the presence of mistrust, knowledge sharing will not be successful.
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Third, trust makes a difference. To achieve a long-term objective, trust is an essential
element (ibid). In addition to the three above mentioned points, trust can be communicated
through shared meanings and shared values (Fukuyama 1995; cited in Huotari and Iivonen
2004:9) which strengthen the cognitive dimension of social capital.
Trust and relations in knowledge sharing have also become evident in partnerships between
organizations. For example, outsourcing knowledge sharing became more common in the
1970 and 1980s with application packages, contract programming, and specific processing
services which provided strategic, economic, and technological benefits. The contract
relationship of the service provider and receiver evolved into a partnership type relationship
in the 1990s when enterprise-wide system integration, application development, and systems
operation were introduced. However, the evolution of outsourcing was not a simple and
smooth transition since many service providers and receivers encountered difficulties in
managing outsourcing (Lee 2000:325). Typical problems were related to the partnership
quality and mutual trust (Lee and Kim 1999) which highlights the importance of relational
dimension.
2.2.3 Cognitive Dimension
The cognitive dimension is focused on shared interpretations and systems of meaning among
employees. According to Nahapiet and Ghoshal (1998), the dimension is still little discussed
in the mainstream literature on social capital. However, cognitive resources address the
importance of intellectual capital, such as shared language and codes and shared narratives,
which are essential especially in the strategy domain. Although social capital exists in many
forms in the MNC, a notable feature from the cognitive perspective is the joint ownership:
social capital is shared capital because no single actor in the organization is capable of
establishing an exclusive ownership over the phenomenon (ibid).
Knowledge sharing and collaboration can be promoted through integrative mechanisms,
such as team building and norms, but creating a context in which interpretations are shared
by every employee is time-consuming (Eisenhardt and Santos 2002; cited in Gooderham et
al. 2010). The aim of corporate socialization is to create a set of values, objectives and
believes across MNC units, leading to a strong sense of shared mission and unitary corporate
culture. If units share the same goals and long-term visions, they are more likely to transfer
knowledge as well. Shared language and codes are developed and transmitted through
15
interpersonal networks which contribute positively to knowledge sharing across the units
(Björkman et al. 2004).
Nonaka and Takeuchi (1995) outline that the success of knowledge sharing is based on
organizational context, in which different cultures, structures, and goals create challenges to
MNCs. Successful knowledge sharing requires a clear common vision and collective goals
for the whole organization. Nevertheless, a shared vision might not be easily achieved
because e.g. cultural differences are seldom simple to deal with. There is no rule stating
which culture is right or more appropriate and, therefore, as a part of risk management in a
multinational environment, planning strategies and budgeting should be devoted a sufficient
amount of time and resources. A failure in understanding the common vision might result in
the different MNC units engaging in opportunistic behavior within the organization (Lee and
Kim 1999) and cause significant harm to stakeholders (APICS and Protivi 2004; Divya and
Ankita 2012).
2.2.4 Structural Dimension
The structural dimension denotes the connections between individuals and evaluates the
morphology by describing linkages; a basic question is who you are and how you can reach
others. The dimension sheds light on networking and how the network affects the
organization on a large scale e.g. through configuration: in addition to its initial purpose, a
network could be used for other knowledge sharing projects, if applicable. The structural
dimension measures social capital through variables, such as density, connectivity, and
hierarchy. The structural dimension benefits the organization with connectivity: building the
structure on networks of social relations enhances information diffusion by minimizing
redundancy (Nahapiet and Ghoshal 1998).
The organizational structure should be considered in-depth when designing the knowledge
sharing policies. In an empirical study by Tsai (2002; cited in Huotari and Iivonen 2004:13)
knowledge sharing methods were observed in a multi-unit organization in which units
compete against each other. The study proposes that a formal hierarchical structure, for
instance in the form of centralization, has a significant negative effect on knowledge sharing.
Yet, it was also discovered that social interaction has a significant positive effect on
knowledge sharing between the units that compete against each other in the market place,
but not among the units that compete for internal resources. Therefore, it is the external
16
market competition rather than the internal competition for resources which promotes
knowledge sharing (ibid: 16-17).
The effect of the structure on MNC performance is widely discussed and similar to the
relationship of the HQ and subsidiary, a challenge on the personnel level is the hierarchy
between employees. The structure of the organization can create conditions for hold-up
power if an individual employee possesses critical knowledge alone. Hold-up power means
the ability of an employee to prevent the management from realizing the value added by
employee‟s knowledge and skills. The problem arises from unclear ownership rights to the
critical assets; in knowledge-intensive companies the key assets are employee‟s mind and
knowledge which are not easily convertible to explicit knowledge. The higher the hold-up
power, the more expensive it is for the firm to implement a relational contract that
encourages cooperative behavior (Kvaløy and Olsen 2008).
Organizations control knowledge sharing processes with varying degrees and through
different mechanisms. Direct supervision from the HQ is often difficult, and in case of
deviant behavior, the ultimate reason might be subsidiary‟s unfamiliarity with the knowledge
sharing objectives set by the HQ. Expatriation might be a way to mitigate the problem
because expatriates most likely understand better the value added by the subsidiary and can
act as mediators between the units. There might be even fewer communication problems
between the HQ and subsidiary when expatriation is used (Björkman et al. 2004).
Although expatriation might enhance the communications between the HQ and subsidiary,
the hierarchical aspect of expatriation may distort knowledge sharing and learning. For
example, expatriates are many times expected to teach the local staff, but very seldom they
realize learning opportunities from locals (Tsang 1999). The lack of dialogue can impair
trust because people, the foreign expatriates and locals in this case, who do not communicate
and share knowledge both ways, do not develop the organization. As a consequence they
may lose valuable knowledge about the local market (McInery; cited in Huotari and Iivonen,
2004:13).
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2.3 Knowledge Governance Approach
As knowledge management has become an increasingly researched topic, there are various
studies within the field challenging or extending the prevailing theories. The Knowledge
Governance Approach (KGA) is an emerging subject of study (Foss 2006; Gooderham et al.
2010) which differs from traditional knowledge-based literature by its way of applying ideas
and solving problems. The core of the KGA theory is about matching “knowledge
transactions – which differ in their characteristics – and governance mechanisms – which
differ with respect to how they handle transactional problems” by “using economic
efficiency as the explanatory principle” (Foss 2006). Defined in another way, the KGA is a
systematic approach to the intersection of knowledge and organization (Michailova and Foss
2009; cited in Gooderham et al. 2010).
The starting point for the KGA theory is the hypothesis that the knowledge transaction
process, such as knowledge sharing, can be influenced by using governance mechanisms
(Foss 2006). Combined with the theory on the determinants of social capital, there are three
types of governance mechanisms that can be used in knowledge sharing: 1) market-based
mechanisms, 2) hierarchical mechanisms, and 3) social mechanisms. Market-based
mechanisms include rewards for transfer of knowledge through bonuses and promotions.
Hierarchical mechanisms comprise authority, rules and regulations. Finally, social
mechanisms refer to a sense of acknowledgement or a sense of professional and personal
development (Ghoshal and Moran 1996; cited in Gooderham et al. 2010). Table 2.2 gives an
overview on the mechanisms and how they contribute to social capital and knowledge
sharing.
2.3.1 Market-based Mechanisms
To enhance knowledge sharing and cooperation among employees, the employer should
establish a rewarding policy that encourages employees 1) to perform tasks together and 2)
to help each other in each other‟s tasks. Cooperation of employees is favorable only if they
possess complementary skills and constantly make effort on helping each other (Kvaløy and
Olsen 2008).
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Dimension Market-based mechanisms Hierarchical mechanisms Social mechanisms
What is exchanged?
Goods and services for money or barter
Obedience to authority for material and spiritual security
Favors, gifts
Are terms of exchange specific or diffuse?
Specific Diffuse (Employment contracts typically do not specify all duties of employee, only that employee will obey orders. Other hierarchical relations imply a similar up-front commitment to obeying orders or laws, even those yet to be determined.)
Diffuse (A favor I do for you today is made in exchange for a favor and at a time yet to be determined.)
Are terms of exchange made explicit?
Explicit Explicit (The employment contract is explicit in its terms and conditions, even if it is not specific. Ditto for other kinds of hierarchical relation.)
Tacit (A favor for you today is made in the tacit understanding that it will be returned someday.)
Is the exchange symmetrical?
Symmetrical Asymmetrical (Hierarchy is a form of domination.)
Symmetrical (The time horizon is not specified nor explicit, but favors eventually are returned.)
Table 2.2. Market-based, hierarchical, and social mechanisms (An extract from Adler and
Kwon 2002)
MNCs in knowledge intensive industries should promote sharing of experiences, especially
by aligning their performance management systems with knowledge sharing. Currie and
Kerrin (2003) argue that current performance management systems even inhibit knowledge
sharing as they set out a divergent set of objectives. In the traditional appraisal systems the
employee is being rewarded by knowing more and, thus, performing better than colleagues
which may discourage sharing (ibid). For instance, in knowledge-intensive companies
possession of crucial knowledge might lead to a trade-off situation in which employees
consider carefully what they receive as compensation and what to disclose to the team
without losing the hold-up power (Kvaløy and Olsen 2008). If employees would share their
knowledge completely, they would only do so at a high personal cost (Edvardsson 2003).
Therefore, rather than offering incentives for collaborative effort, in certain cases it might be
actually more cost-efficient to reward for individual performance. Nevertheless, Evans
(2003) stresses further that organizational culture must be such that it inherently supports
knowledge building and sharing, hence promoting a learning culture, developed through
adequate learning resources and reward schemes for both sharers and learners.
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Reward systems are regarded as an essential part when motivating employees to share
knowledge but not all the scholars agree on their usefulness. Many studies point out that the
organization should plan the reward system in such a way that it is linked to organizational
performance (Björkman et al 2004; Islam et al. 2011). Then again, some researchers claim
that indirect rewards such as appreciation and recognition promote knowledge sharing better
than financial incentives.
Long-term oriented rewarding systems, e.g. profit sharing or share options as rewards lead to
more effective result than short-term rewards. Sustainable knowledge sharing can be
achieved best through non-monetary rewards with the support of the top management (Islam
et al. 2011). Yet, if financial incentives are used to promote knowledge sharing, in the most
ideal case the bonuses are based on global performance of the company because the
subsidiaries will get an incentive to share knowledge so that other units can benefit from that
knowledge and also reach success (Björkman et al. 2004). Applying the same principle to a
single MNC unit, rewards for group contribution should be preferred over individual
contribution (Islam et al. 2011). In the end, it is difficult to say to what extent financial
compensation encourages knowledge sharing since global performance is a sum of many
factors (ibid).
2.3.2 Hierarchical Mechanisms
Organizations control knowledge sharing with different approaches to hierarchy. The forms
of hierarchical governance can be either consensus-based hierarchy or authority-based
hierarchy. Consensus-based hierarchy has a high organizational cost and should be only
applied when the market conditions are highly complex and the benefits of consensus-based
hierarchy exceed the costs. Authority-based hierarchy is based on superiority and is most
suitable for moderately complex situations (Foss 2006).
The hierarchical relationship of the HQ and subsidiaries can determine the transfer capacity
to a great extent. Howard Perlmutter (1969) presents generalizations to understand the
relationship between the multinational parent and subsidiary in his research which identifies
three developmental phases in the MNC, as subsidiaries move from dependency to
increasing autonomy from the parent: 1) ethnocentric, 2) polycentric, and 3) geocentric. The
model is generally known as the EPG model and can provide insights into understanding
how the MNC has structured decision-making.
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The ethnocentric approach focuses on full-scale transfer of practices from the HQ to
subsidiaries. The power is in the country of origin and, therefore, the management is often
centralized. The polycentric relationship relies on local managers and employees in adaptive
decision-making, and assumes they are best suited to formulate policies that respond to the
local needs. These companies are more decentralized and the subsidiary has a somewhat
high level of autonomy; for example, training employees and payment structures are based
on local conditions (Perlmutter 1969, Harvey et al. 2001). The geocentric approach
highlights an integrative relationship through dialogue: knowledge and routines are being
transferred from the parent company to the subsidiary and vice versa. The setting combines
local and international strengths in which managers are skilled to think globally about the
organization, while at the same time take local needs into consideration. The geocentric
organizations are flexible and less hierarchical in which responsibility is given to the local
units to a substantial degree (Perlmutter 1969, Harvey et al. 2001, Hollinshead 2010:53).
Besides the EPG model, the bounded rationality and sheer ignorance perspectives can
explain hierarchical mechanisms applied in knowledge sharing across the international units.
The perspectives are difficult to measure and compare directly but they approximate and
simplify reality. The bounded rationality perspective suggests that the HQ can design and
indirectly control the knowledge sharing process by intervening moderately and taking the
multinational circumstances into consideration. The sheer ignorance perspective denotes a
less optimistic view: the theory claims that the HQ's ability to involve and control the
subsidiary is far from clear. Scholars address the problem of the lack of relevant knowledge:
the HQ does not know what kind of information it lacks and highlight that the HQ's positive
contribution to the subsidiary is highly dependent on its access to relevant knowledge.
Moreover, the power of the HQ might be insufficient. The sheer ignorance perspective
suggests that the HQ should decentralize decision-making to the subsidiary if knowledge is
located there (Ciabuschi et al. 2012).
In his paper about modern economics of organization, Nicolai J Foss (1999) studies
dispersed knowledge and the modeling of knowledge in organizations. He states that
management can hardly centralize all dispersed knowledge inside the firm since employees
possess knowledge and know work-related matters “about which their bosses have no idea”
(Sautet 2000). The principal and agent theory acknowledges the principal‟s loss of control.
The HQ (the principal) expects the subsidiary (agent) to share knowledge to contribute to the
21
overall competence development of the MNC but because of asymmetric information, the
subsidiary might not be willing to act according to the principal‟s interests (Foss 1999).
There might be several motives to withhold information but one of the most common
reasons is the subsidiary‟s fear of losing its uniqueness and, thus, possibly weakening also
“bargaining power” within the MNC. Another substantial factor is the subsidiary managers
who may not want to spend their limited resources of knowledge transfer. The subsidiary is
more likely to share knowledge if its status is emphasized by the HQ. The principal can also
use monitoring and behavioral control strategies to make the agent act in the principal‟s
interest. An example of social monitoring is expatriation: the MNC can have expatiates in
the subsidiary to control that they act in the interests of the HQ (Björkman et al. 2004).
2.3.3 Social Mechanisms
Several studies support the positive effect of social relations and especially good informal
relations in knowledge sharing (Bresman et al. 1999; Gupta and Govindarajan, 2000; Tsai
and Ghoshal 1998, cited in Gooderham et al. 2010). Social capital is a critical asset in
solving complex and diffuse problems linked to knowledge sharing and by encouraging
employees to create social relations the MNC can contribute positively to knowledge flows.
However, hierarchical governance mechanisms may hinder knowledge flows because they
could affect the development of social relations negatively. Market-based governance
mechanisms are found to have no significant effect on social capital (Gooderham et al.
2010).
Herschel and Jones (2005) assert four essential aspects to knowledge sharing: collaboration,
content management, organizational behavior, and technology. Collaboration denotes the
importance of human resource management because the recruitment of the right employees
starts by attracting the candidates with ideal qualifications. However, besides skills and
experience, the cooperative attitude is necessary since it is stated that knowledge sharing and
innovation occur essentially through team work and it is the case particularly in knowledge
intensive companies (Herschel and Jones 2005; Jones 2008).
Social mechanisms address the sense of professional and personal development (Ghoshal
and Moran 1996; cited in Gooderham et al. 2010) in which dynamic capabilities become
critical: from the developmental perspective, dynamic capabilities enable the change and
learning process in the organization. A classic framework in the dynamic capabilities
22
concept is single and double-loop learning. Single-loop refers to optimized skills, refined
abilities, and acquired knowledge that is necessary to achieve resolution of a problem. It is
not a problem as long as the operational environment stays the same. However, if a
competitor is innovative and introduces a superior way to provide value through their
services, it might be able to change the market dramatically (Clegg et al. 2011: 343-344).
Double-loop learning drives change in the values and operating assumptions of the
organization and can be described to have a similar effect than that of high level routines
have on the configuration of resources (Zahra and George 2002; cited in Easterby-Smith et
al. 2006). Whereas single-loop learning pursues to optimize the problem-solving capabilities
in a given context, double-loop learning questions the framework of the core assumptions
and values (Clegg et al. 2011: 343).
Moreover, it is not only learning that leads to professional and personal development but
also unlearning. Unlearning can become a crucial part of the change process since in certain
occasions companies need to be able to abandon existing values and practices in order to
learn new routines. An ability to adopt new habits is greatly dependent on the organizational
structure and how the organization is designed to operate in an unpredictable and fast
changing environment (Hedberg et al. 1976; cited in Easterby-Smith et al. 2006). For
example, exploring new technologies can prepare the organization for environmental
changes and increase competences. However, there is also a phenomenon called
„competency trap‟ which refers to a state of excellence the company has reached and
prevents the management from seeing the limits of organizational achievements. The trap
can possibly cause a lot of harm since the organization is too focused on doing its business
the way it has always done without giving any attention to the changes in the environment
(Clegg et al. 2011: 342).
Social mechanisms are not to be seen only as abstract high-level concepts but they are
embedded in specific activities. According to Easterby-Smith et al. (2006) IT, HR, and
marketing can “provide the infrastructure for wider organizational dynamic capabilities.”
Researchers from the field of HR have highlighted organizational flexibility and leadership
that encourages employees to question status quo (ibid). “The biggest enemy of learning is,
ironically, knowledge itself” because when the organization or employee assumes they know
something, it usually means they stop learning. Yet, it must be noted that the traditions of the
23
organization are not easily disregarded and rather than abandoning them completely, they
should learn to adapt (Clegg et al. 2011: 341).
In addition to learning, technical solutions in knowledge management are central social
mechanisms. From a social perspective, if implemented and managed well, technology can
have a significant positive impact on knowledge sharing and social capital. Furthermore, in
service industries, such as banking and consulting, adopting and learning to use information
technology is necessary in order to reduce costs, gain efficiency, and increase
competitiveness. Social interaction online can actually become a cost-efficient solution for
the MNC. For example, the use of social media can add value by allowing more instant bi-
directional communication between the foreign units. Instant messages can work as an
informal channel for employees to share knowledge, and for instance, IBM is among the
companies which encourage their employees to use instant messaging. Allowing employees
to spread information and knowledge via instant messages strengthens also team-oriented
working. Moreover, IBM has launched its own internal social network site in which
individuals can create an online profile. Enterprise social networks enable them to develop
relationships with their colleagues across the international units. Instant messages and social
network conversations between employees are an informal social mechanism to support
knowledge flows (Steinfield et al. 2009).
2.4 Industry Characteristics
This section gives information about knowledge sharing trends in the banking and consulting
industries. Furthermore, we present main differences between the industries.
2.4.1 Banking
Throughout the 21st century, banks have developed into more complex financial
organizations which offer a variety of services not only in the domestic market but also in
the international market (Berger and Smith 2003). As banks are striving to maintain their
competitiveness, foreign markets can create a source of innovation and profitability for them.
Hence, cooperation and knowledge sharing across the international units may help them to
24
identify new business niches, develop customized services, and to capture new market
opportunities (IISD 2013).
Moreover, as a partial consequence of the intense competition and the financial crisis, banks
are going through a transition period in their operational model: financial institutions have
started to standardize and streamline their operations (Samsung.com). Cost reduction e.g.
through salary cuts or reduced number of employees may offer short-term survival but lead
to long-term problems in the form of low motivation to share knowledge and know-how
leakages. Saving on human resources in the knowledge intensive industry “sacrifices
resources for the sake of profit.” It is also claimed that retaining know-how through hard
times will pay off many times in good times (Rumelt 2009). Yet, Sveiby (1997) reminds that
retaining all the employees is often against the common good of the company.
As a part of the transition period in the banking industry, many nations have removed
traditional regulatory barriers which have prevented banks from expanding to new markets
(Berger and Smith 2003). With the transition banks pursue to become also more flexible and
dynamic in the local business operations and, thereby, gain loyalty through increased
customer satisfaction. In addition, a more dynamic model allows them to gain market share
from less flexible institutions (Samsung.com). For example, by restructuring and
standardizing their IT architecture and knowledge sharing procedure, the banks can manage
international knowledge flows more efficiently (Schoder and Madeja 2004; cited in Hafizi
and Zawiyah 2009).
Training programs are often used in the banking industry as a knowledge sharing instrument.
The new employees get educated to sharing because banks increasingly recognize the value
of knowledge sharing even on the local branch level. However, it is not only about educating
newcomers but updated knowledge must be transferred to all members of the subsidiary.
Teaching the employees who are used to working according to the established or even out-
dated principles might not always go as smoothly as planned. Furthermore, the value does
not come from sharing systems alone but also from social interaction that is needed to
strengthen organizational learning (Martín Rubio 1998, Wafa and Jalal 2011).
2.4.2 Consulting
Knowledge sharing in the consulting industry is driven by knowledge intensity of the
companies. Michailova and Gupta (2005) outline that in order to learn faster than the
25
competitor and provide quality and value to their clients, global consulting companies need
well-organized and managed cross-departmental knowledge sharing processes. Furthermore,
the context specific knowledge should not be shared only through a single technical system
because different departments have diversified needs. Although social interaction among the
employees in different departments can improve learning and understanding, knowledge
sharing hostility is a dominant phenomenon in organizational reality (ibid).
Also, it is not only technology itself which defines knowledge sharing in consulting but the
way it is applied. Technical competencies tend to have “little immediate value beyond the
individual MNC” (Gooderham and Nordhaug 2003) and, therefore, it is more important to
consider the framework beyond the system.
Figure 2.2. IBM Knowledge Management framework. (Source: Gongla and Rizzuto 2001)
Figure 2.2 illustrates an example of a knowledge management program, the KM program
which IBM Global Services introduced in 1995. The purpose of the program is to benefit an
individual employee and the organization as a whole. It relies on the creation and
development of informal knowledge networks which consist of professionals who foster a
sense of community internationally. Among their responsibilities are collecting, evaluating,
structuring, and forwarding knowledge to the peer communities (Gongla and Rizzuto 2001).
26
Figure 2.2 summarizes the key components which support knowledge management on
different levels: vision, strategy, and value system on the bottom line, processes,
organization, and technology in the middle, and measurements and incentives on the top.
The key components are all interlinked through leadership. The program addresses the
importance of collective learning; by enhancing the interaction of employees, the consulting
company enhances knowledge sharing, especially tacit knowledge sharing (ibid).
2.4.3 Main Differences between the Industries
Main differences between the banking and consulting industries originate from the
organizational structure. Banks have traditionally operated in a limited market which has
made controlling for the HQ easier. Also, the standardized operations, such as lending,
current accounts, and payment transfers (Berger and Smith 2003) do not require extensive
knowledge sharing across the operations.
The structure of the consulting MNC can be described as a global network in which the HQ
does not exercise as comprehensive control over the subsidiaries as opposed to that in the
banking industry. While banks have focus on finance, consulting companies operate with
more diversified themes around problem solving and value creation. Thus, consulting
companies have a broader scope of knowledge available for the advisory projects for
different kinds of companies in different industries (EconomyWatch 2010, The Editors
2012).
The global consulting industry has traditionally been highly knowledge intensive and
sharing-oriented and the knowledge sharing policies have been established over a long
period of time. However, as banks are gradually growing more international today, they are
making a great effort to improve their knowledge sharing policies (Berger and Smith 2003).
Although both industries operate by selling knowledge services, the core of the banking
industry is to provide access to credit, investments, and savings while the consulting industry
provides solutions and advice to clients in a wide range of business problems
(EconomyWatch 2010, The Editors 2012).
27
2.5 Cultural Characteristics
Cultural identity of the MNC can hardly be ignored in knowledge management; Watson
(1998, cited in Leidner and Kayworth 2008) refers to a study by Ernst and Young which
identifies culture as the main hindrance to knowledge transfer. More specifically, it is
organizational culture and the inability to change people‟s behavior that complicates
knowledge sharing. For example, Ruggles (1998; cited in Leidner and Kayworth 2008)
found out that over half of the 453 firms surveyed in the study indicated that organizational
culture is the main barrier to success in knowledge management.
Because organizational culture derives many elements from the country of origin of the
MNC, national culture is presented as a foundation of organizational culture in our research
model. Therefore, the following sections introduce the characteristics of national culture
followed by the effect of the MNC structure on organizational culture.
2.5.1 Cultural Identity and the Country-of-Origin Effect
Despite their multinational presence, the identity of MNCs is often national (Hollinshead,
2010:10). Hofstede‟s research about cultural dimensions is among the most applied theories
in the field of cross cultural management. The survey from the early 1970s, based on about
116 000 IBM employees in over 60 countries, led to five cultural dimensions that are used to
distinguish national cultures. These cultural dimensions are Power Distance (PDI),
Individualism vs. Collectivism (IDV), Masculinity vs. Femininity (MAS), Uncertainty
Avoidance (UAI), and Long- term vs. Short- term orientation (LTO). The cultural dimension
theory aims at clarifying how certain norms and values influence individual and
organizational behavior (Hollinshead 2010:32-33).
An essential learning outcome of Hofstede‟s theory for MNCs is to recognize that “culture is
more often a source of conflict than of synergy. Cultural differences are a nuisance at best
and often a disaster” (The Economist: Geert Hofstede 2008). Awareness and understanding
of cultural differences in knowledge sharing is highly important when it occurs through
direct communication between the employees in a multicultural environment; what may be
acceptable in one country can be offensive in another (Wardrobe 2005).
Banks interviewed in this thesis are culturally connected to Norway and Portugal, and the
consulting firms derive their origin from the United States. However, the scope of our study
28
is limited to assess national culture in the country of the operational unit and, therefore, we
devote less attention to the US culture.
Norway and Portugal are different in many cultural aspects and, hence, we present the
countries in figure 2.3. Furthermore, recognizing the possibly negative impact of the country
of origin brings a crucial aspect to the MNC operations: can subsidiaries really trust that the
best practices are transferred and applied internationally or is it the country-of-origin effect
which prevails? (Noorderhaven and Harzing 2003)
Figure 2.3. Hofstede‟s cultural dimensions: Norway and Portugal (Source: The Hofstede
Center)
As illustrated in figure 2.3, the PDI in Portugal is rather high in comparison to Norway
expressing that there is inequality in the power distribution; in companies the power
distribution can be seen as a greater hierarchical distance.
The individualism dimension measures the degree of interdependence among individuals and
locates Portugal low and Norway high. Thus, organizational culture in the Portuguese
companies is characterized by e.g. loyalty and long-term commitment to the „group‟, which
might be regarded even as an extended family. Moreover, the promotions and recruitment
must take relationships into consideration. In contrast, the lower score of Norway signals “a
loosely-knit society” and e.g. promotions are based on the evidence of qualifications.
The MAS for Norway is the second lowest in the whole study after Sweden. A low score
indicates softer aspects in working life, such as pursuit of well-being, flexibility, solidarity,
31
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8
50 44
63
27 31
104
30
0
20
40
60
80
100
120
PDI IDV MAS UAI LTO
Norway
Portugal
HOFSTEDE'S
CULTURAL
DIMENSIONS
29
and dialogue in decision-making. The Portuguese score is not significantly higher but
expresses more masculine values, such as success and attaining higher status through e.g.
monetary rewards.
According to Hofstede, “if there is a dimension that defines Portugal very clearly, it is the
Uncertainty Avoidance.” On this dimension the country receives clearly a higher score than
Norway, which can be described as more uncertainty accepting, having curiosity towards
new and innovative things, and less emotionally expressive.
Finally, the long-term orientation is slightly higher in Norway. In the Norwegian
organization this dimension can be observed as appreciation for truths and concern for
stability as well as value for leisure time. Portugal is more short-term oriented and e.g.
business performance is measured on a short-term basis (The Hofstede Center).
2.5.2 The Effect of the MNC Structure on Organizational Culture
MNCs can be structured according to the market circumstances in which the MNC operates.
There are four different types of MNCs which affect organizational culture and knowledge
sharing mechanisms (Bartlett and Ghoshal 1989, cited in Hollinshead, 2010:51):
1. The Multidomestic
2. The International
3. The Global
4. The Transnational
In the Multidomestic type, the products and services are differentiated to meet the local
demands, and the products are often locally produced. The organizational structure is
decentralized, with a low level of control from the HQ. This type of the MNC is common
e.g. in the food industry (Hollinshead, 2010:51).
The International MNC is a type of a company in which the subsidiary is dependent on the
HQ to a great extent regarding new products and services. The power is centralized on the
HQ level and this type of an MNC is fairly common e.g. in the telecommunications industry
(ibid).
Production in the Global MNC is integrated and rationalized to deliver standard products in a
cost efficient way. Control over the subsidiaries is often centralized and bureaucratic making
30
the subsidiaries dependent on the parent. The Global MNC type is common e.g. in consumer
electronics, computers, and automobiles (ibid).
The Transnational MNC adapts to local conditions while seeking to maintain the economies
of scales in the market environment in which the competition is increasing (Hollinshead,
2010:52). To remain locally responsive, the subsidiary is responsible for research and
development while the parent has certain control rights to keep the operations globally
efficient. For example, the parent company is responsible for incorporating the subsidiary
managers into the corporate ethos by establishing interactive networks between the parent
and subsidiaries. The Transnational MNCs is a common type e.g. in the pharmaceuticals
(ibid).
Figure 2.4 illustrates the MNC types in relation to their level of global integration of
operations and local responsiveness. The trend among many MNCs especially in consulting,
accounting, and advertising is a transition to a broader “transnational arena.” In this arena the
management principles are derived centrally from the HQ but decision-making, R&D, and
marketing, for example, are locally adjusted due to the local knowledge being embedded
socially and historically in each individual market (Geppert and Clark 2003; Kobrin 2008).
Figure 2.4. MNC Structures (An adaption from Gooderham and Nordhaug 2003:56)
As presented in Chapter 1, our research locates banking in the global dimension and
consulting in the transnational dimension. Banks are usually characterized by more
pronounced global HQs whereas consulting companies follow a partner model in which the
HQ and subsidiaries resemble network organizations with a great level of local
responsiveness as well as integrated operations.
31
2.6 Summary of the Literature Review
This section summarizes the main aspects from the literature review. We use the findings
from the existing literature to discuss, compare, and analyze our findings from the empirical
research in Chapter 5.
Knowledge management and efficient knowledge sharing mechanisms are essential to
service MNCs because their business is based on delivering value from knowledge. There
are various issues which contribute to knowledge flows between the HQ and subsidiaries.
The knowledge flows across the operations can be mutual or one-sided depending on e.g. the
structure and organizational culture of the MNC, type of knowledge to be transferred (tacit
vs. explicit), knowledge intensity, centralized or decentralized decision-making, cultural
distance, and sharing systems, to name a few.
The social capital theory consists of three dimensions: relational, cognitive, and structural
dimensions. Social capital derives value from social networks and cooperation between
individuals and groups. Together with a well-established knowledge management system,
the MNC can gain significant competitive advantage from the phenomenon. Social capital is
interlinked with the knowledge governance approach (KGA) which together can create an
optimal platform for knowledge sharing.
The KGA theory divides the incentives to share knowledge in three groups: market-based,
hierarchical, and social mechanisms. These mechanisms include e.g. rewards systems
(market-based), rules and regulations (hierarchical), and acknowledgement and self-
development (social) which influence social capital. The mechanisms may also strengthen
trust towards colleagues and, thereby, promote knowledge sharing (Foss 2006).
Knowledge sharing is a sum of many elements, such as collaboration, content management,
organizational behavior, and technology (Herschel and Jones 2005) but may also be affected
by industry and culture. For example, they may bring challenges for knowledge management
through the industrial changes or cultural differences. In the end, rather than perceiving
knowledge management as a source of cultural conflicts or costs, it should be seen as a way
to make the organization more efficient when the right kind of knowledge is available at the
right time.
32
3. Methodology
In this chapter we present the methodology for this thesis. We combine the main theoretical
elements from the literature review to create a theoretical framework for the research. The
thesis is qualitative in its nature because we consider meeting the exploratory research
objectives better with this method.
This part starts by introducing the basic conditions for qualitative academic research
followed by an illustration of the research model. Then, we describe the data collection
process and give brief information about the companies which we have chosen for the
empirical research part. We also introduce the methods for the data analysis. Finally, we
address the reliability and validity of the research.
3.1 Research Method and Design
3.1.1 Qualitative Research
Qualitative research is based on observations and non-numeric data, such as words, images,
and video clips. This research type is often used for data collection e.g. in interviews for
analysis that aims at gaining a comprehensive understanding of a specific phenomenon
(Saunders et al. 2012). We have chosen to use qualitative research method because it seeks
to explain the underlying motivations and reasons while quantitative research pursues to
generalize results based on a large sample. Qualitative research provides insights into
problem statements which can be used for quantitative study later on by developing
hypotheses based on the insights and findings of qualitative research. The sample of a
qualitative study is normally a small number of well-selected respondents (Woods 2006). In
this thesis, the sample consists of eight people from seven multinational companies in
Norway and Portugal.
The techniques in qualitative research consist mainly of interviews. The two major types of
interviews are unstructured and semi-structured interviews. An unstructured interview is
similar to a conversation and can consist of a single question to which the interviewee is
33
allowed to reply freely. The interviewer can react to the points that seem meaningful and
worth follow-up to ensure enough information is available for the research process.
A predefined list of questions and topics, i.e. an interview guide, is a common starting point
for the semi-structured interview. The interview guide can define the order of the questions
but it is also common to let the interviewee reply freely to the starting questions and adjust
the order of the remaining questions on topics that are covered as the interview proceeds. In
the end, even though the interview guide would not be followed in order, all the questions
will be asked (Woods 2006; Cooper and Schindler 2008).
3.1.2 Advantages and Disadvantages
Qualitative research is a fairly common research method especially in the field of human and
organizational behavior because it is a flexible approach to data collection. By flexibility it is
meant that this research method type does not use or manipulate variables and the concepts
and data collection can be adjusted to the research process. Qualitative interviewing differs
from quantitative interviewing in a number of ways. For instance, qualitative research has a
less structured approach to the research topic because there is a great interest in the
interviewee's point of view. For example, “going off at tangents” in the interview is often
encouraged because it can reveal relevant insights into the topic (Gordon 2009).
Additional advantages of qualitative research include its investigative nature: it relies
primarily on first-hand experience, truthful reporting, and quotations of conversations.
Regarding knowledge management, qualitative research method can help to create an
optimal research model for understanding how interviewees “derive meaning from their
surroundings, and how their meaning influences their behavior” (CSU 2013).
Some disadvantages of qualitative research method are identified by the California State
University (2013). First of all, they list qualitative research to be time-consuming. In
addition to time, there is usually a lot of data to be transcribed and it might be difficult to
code and quantify e.g. an interview because of the nominal level data. Also, controlling
observer biases may be difficult especially when the data goes through the researcher before
it is on the paper. As mitigation it is suggested that the data should be able to “bear the
weight of any interpretation” (Rajendran 2001). Furthermore, it is claimed that the data
collection gives usually more detailed description of the research topic “rather than even the
34
2. Social capital (SC) Relational dimension Cognitive dimension Structural dimension
remote working and might even yield cost savings to the company when working can be
done online with less traveling days.
According to the interviewee at Accenture Portugal, “connecting human capital programs to
strategic outcomes” is the foundation of social capital in the company. Social capital
contributes to better overall performance through efficient knowledge sharing and
developing the dynamic capabilities of the employees. For example, the Norwegian
60
interviewee at Accenture talks about special interest groups which are formed around
different projects and themes:
“You can join a group if you have a special interest in a certain topic. The
community meets regularly and there are presentations and experience and
research sharing among the members which gives us a chance to gain new
insights. I‟m a member of several communities in which I can update my
skills and knowledge in different areas.”
- Interviewee at Accenture Norway
4.6 Knowledge Governance Approach in Consulting
4.6.1 Market-based Mechanisms
IBM Norway has a reward system for sharing knowledge but according to the interviewee,
the company has reward system basically for everything. However, she avoids highlighting
the system and explains that “knowledge sharing is a reward itself; you do not need
incentives to see the value of knowledge sharing.” IBM Portugal does not mention any
special award or bonus for active knowledge sharing.
Similar to IBM Portugal, Accenture Portugal does not mention any financial reward system
simply for knowledge sharing. The Norwegian interviewee at Accenture comments briefly
on the reward system by stating that the company has naturally a rewarding scheme. The
reward system consists of points which entitle the employee e.g. to a gift card but in the long
run active and high quality knowledge sharing will most likely contribute to promotions.
However, he reminds that knowledge sharing should always come naturally because it is a
fixed part of their organizational culture and every employee understands its positive effect
on organizational performance.
4.6.2 Hierarchical Mechanisms
Hierarchy at IBM comes visible in their corporate culture. According to the interviewees,
IBM is process-oriented company and as a gigantic global operator, there must be rules and
standards to set clear guidelines to the employees. Reporting can be done through different
61
tools but it must be done in a certain manner which gives the managers on the higher levels a
clear understanding of the current performance. Clarity and following certain hierarchical
steps in knowledge sharing is important in all departments because it makes working more
efficient for every level. For example, standard reporting reduces traveling days of managers
and, hence, saves resources to be used for the value-adding projects.
As the Norwegian interviewee at Accenture outlines, the hierarchical dimension at
Accenture sets special expectations to the senior employees: “the more senior you are the
more you‟re expected to contribute to knowledge flows.” However, the interviewee notes
that even the senior management is dependent on other employees in terms of knowledge.
Cooperation should come naturally and the existence of knowledge sharing guidelines and
practices is not the ultimate driver for knowledge sharing.
4.6.3 Social Mechanisms
The interviewee at IBM Portugal emphasizes the importance of organizational culture which
she describes as “pretty strong.” Social recognition is probably the most rewarding outcome
that one can receive by sharing knowledge and helping other. The interviewee gives an
example of their virtual reward called “Blue Thx” which is a message with a blue ribbon:
“It‟s a thank you message that you can and actually should send after your
colleague has helped you. It‟s visible to the recipient and their connection
board which includes the managers.”
- Interviewee at IBM Portugal
In addition to the Blue Thx, the employees are expected to address their colleagues in their
annual development plan. The interviewee at IBM Portugal clarifies the career development
process in the company:
“They go through their career development objectives in collaboration with
their supervisors and team leaders. Collaboration notes also the methods how
an individual employee is going to help the colleagues to achieve their
objectives.”
- Interviewee at IBM Portugal
The IBM interviewee in Norway describes the use of social mechanisms through
appreciation the IBMers get not only from their colleagues but also from the society in
62
general. Working with great minds in advanced and demanding projects is highly valued
among Norwegians.
The social mechanisms of IBM include developmental programs for the employees: new
talents and potential leaders can enter a corporate citizen program in which they work
voluntarily on NGO projects from four to six weeks in third world countries. The program
gives them precious knowledge management and leadership experience abroad and is a good
merit for a new employee who pursues to become an IBM manager.
Besides the developmental programs, the interviewee at IBM Portugal mentions working
communities as social mechanisms: both enable the employee to develop personal and
professional skills. Working communities are special groups organized around projects or
different subjects, such as Talent Hub, Business Analytics and Employee Learning
Facilitator Community. The communities were initially established to provide informal
learning experiences and knowledge exchange internally. There is a section for the
communities on the intranet where the community members have blogs and discussion
forums to go through problems and solutions together. The members can add content and
comments on the topics which remain in the name of the “owner” i.e. the one who started the
topic.
The social governance mechanisms at Accenture are among the main drivers of knowledge
sharing. The Accenture interviewees describe recognition in the working community as a
result of sharing skills and knowledge with colleagues. Social interaction at Accenture is
encouraged through feedback the employees can give to each other. They are evaluated by
their colleagues and one dimension in the evaluation process is collaboration.
“If you only sit alone behind your computer, other people won‟t notice you and you cannot
contribute to collaboration and sharing,” states the Norwegian interviewee at Accenture.
Furthermore, he continues with an example of gatherings. The employees of Accenture
Norway may gather together in different kinds of events and meetings which are mainly
designed for socialization. The content and activities can vary from an analytical
presentation to a less formal case study in groups. The Portuguese interviewee at Accenture
supports the Norwegian interviewee by describing their practices: “Even a coffee break
together may have a remarkable impact on knowledge sharing and social interaction. In
relation to its cost, I find the outcome many times more precious.”
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The training of the “IBMers” is done online to a great extent. The interviewee in the
Portuguese unit says that the Lead Learning Center is in Malaysia and education is organized
through a learning tool which every IBM employee can access independent of their location.
The Norwegian subsidiary adds further that IBM uses workshops to train the employees to
use e.g. social media.
4.7 Summary of the Findings
The findings from the interviews in this chapter are summarized in table 4.1 and we use the
content of the table in the discussion in Chapter 5. The table follows the structure of the
research model by showing Knowledge Sharing (KS), Social Capital (SC), and Knowledge
Governance Approach (KGA) in the left column. The industry (banking and consulting) can
be seen on the top row of each research dimension. The culture (Norway and Portugal) is
included in each research dimension and under both industries.
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BANKING CONSULTING
1. KS
Norway: Norway:
Value – KS culture been developed increasingly over the past few years; KS expressed as “a way to win”
Value – KS has a top priority because value in consulting comes from knowledge; KS enhances the ability to adapt to changes
Mutual / one-sided – the HQ and bigger subsidiaries transfer knowledge in larger volumes
Mutual / one-sided – very independent subsidiaries which receive only main principles from the HQ; otherwise more KS and communications with the Nordic cluster
Systems – intranet, email, SharePoint, Lync, document library
Systems – intranet, instant messages, video conferences, presentations, blogs, enterprise social network tools (e.g. Yammer), and Lotus® Notes
Portugal:
Portugal:
Value – KS is valuable when the quality of knowledge is good and relevant; KS can improve sustainability and profitability in banking
Value – KS has a top priority because value in consulting comes from intangible resources; KS enables more efficient operations because employees can use knowledge that has already been created
Mutual / one-sided – the HQ and subsidiaries in the developed markets send more knowledge to the subsidiaries in the less developed markets
Mutual / one-sided – the Portuguese consulting units operate in a small market from the global perspective and the units receive more knowledge than send; also, interaction is more frequent with the units which are in the same cluster (e.g. Spain)
Systems – F2F meetings, intranet, email, video conferences, Skype
Systems – intranet, instant messages, video conferences, presentations, blogs, enterprise social network tools (e.g. Yammer), and Lotus® Notes
BANKING CONSULTING
2. SC
Norway: Norway:
Relational – values, especially trust, are the result of collaboration which has been actively encouraged through a special program; relational dimension enables to follow the principle “the art of meeting the customer”
Relational – international training helps to develop personal connections with employees in the other MNC units; employees are encouraged to provide and ask for help to avoid wasting time on reinventing the already existing solutions
Cognitive – the employees should share the same knowledge and basic skills e.g. in IT; the simple language is a key to understanding
Cognitive – values promote the relational dimension: “values are shared globally and owned by every employee”
Structural – networking with the subsidiaries through expatriation; a fixed part of the MNC structure and it is common for the employees to spend a few years abroad
Structural – little control in the KS processes from the HQ, the responsibility for certain key operations e.g. R&D or training are decentralized in the subsidiaries
65
Portugal:
Portugal:
Relational – trust comes from personal and well-established relationships with other employees and customers; “trust is our product”
Relational – the relational dimension contributes to trust; global teams and established connections between the foreign MNC units enhance knowledge sharing
Cognitive – KS helps to develop shared interpretation about the business, e.g. shared idea of customer service
Cognitive – focus on the cognitive dimension in social capital: shared values and interpretations e.g. about the quality of knowledge and the value of sharing; however, the high score in UA index in Hofstede’s dimensions seems to prevail occasionally and employees may neglect the cognitive dimension
Structural – social capital derived mainly from the structural dimension: expatriation used on a rather large scale to build and develop networking and knowledge sharing between the HQ and subsidiaries
Structural – little control in the KS processes from the HQ, the responsibility for certain key operations e.g. R&D or training are decentralized to the subsidiaries
BANKING CONSULTING
3. KGA
Norway: Norway:
Market-based – no market-based mechanisms
Market-based – some market-based mechanisms in use but their deployment is seldom based solely on knowledge sharing; no clear emphasis given on the market-based mechanisms
Hierarchical – authority-based hierarchy: the HQ has superior knowledge and the management is centralized
Hierarchical – consensus-based hierarchy: rules, standards, and guidelines for knowledge sharing
Social – encouraged self-development through learning from others, openness and transparency; e.g. open calendar for colleagues to see what one is doing and when
Social –KS tools to collaborate across operations; social knowledge governance mechanisms in use are mainly formal and informal social events, personal development, and acknowledgement (e.g. IBM Blue Thx)
Portugal:
Portugal:
Market-based – no market-based mechanisms
Market-based – no market-based mechanisms
Hierarchical – authority-based hierarchy: the HQ has superior knowledge and management is centralized
Hierarchical – consensus-based hierarchy: rules, standards, and guidelines for knowledge sharing
Social – formal and informal social mechanisms: learning and developing skills through interaction with colleagues, lunch, and non-work-related activities
Social –KS tools to collaborate across operations; social knowledge governance mechanisms in use are mainly formal and informal social events, personal development, and acknowledgement (e.g. IBM Blue Thx)
Table 4.1. Summary of the findings
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5. Discussion
Chapter 5 discusses our findings in relation to the research model. Furthermore, this chapter
presents answers to the research questions and assesses the validity of the propositions. We
start by going through the research questions and analyzing the impact of industry and
culture on knowledge sharing, social capital, and knowledge governance mechanisms. The
comparative analysis leads us to discuss managerial implications of the thesis as well as
suggestions for future research.
As one of our main findings we identify that industry determines knowledge sharing more
than culture; the findings are more homogenous from the industry perspective (e.g.
Norwegian consulting vs. Portuguese consulting) than from the country perspective
(Norwegian companies vs. Portuguese companies). Based on the findings (see table 4.1), we
present answers to our research questions in the following sections.
5.1 Promotion of Knowledge Sharing in Service MNCs
Knowledge sharing in service MNCs is a notable resource because in comparison to other
resources, its value increases when used. The more knowledge is shared, the more value is
created (Becker 1999, Adler 2001). Knowledge is shared through IT-based instruments, such
as document management systems (Smits and de Moor 2004) but to respond to “the context-
specific knowledge-sharing needs”, the MNC must facilitate sharing and interaction across
the MNC operations (Michailova and Gupta 2005). Our first research question pursues to
define how knowledge sharing is promoted in a specific service industry:
1) How do MNCs promote knowledge sharing in different service industries, such as
banking and consulting?
The findings of our research suggest that the consulting MNCs use more social knowledge
governance mechanisms to share knowledge than the banks. Both industries have established
KS policies and principles to promote knowledge flows but the consulting MNCs seem to
have embedded knowledge sharing more extensively in their organizational culture. A
reason for the stronger knowledge sharing culture in the consulting MNCs may be the
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development of consulting-specific knowledge sharing mechanisms over a long period of
time; for example, IBM has a long history of knowledge sharing in the multinational
environment.
5.1.1 Promotional Mechanisms
Personal relationships between employees are valued in both industries and trust is
developed through social interaction. Socialization with colleagues in formal and informal
events and training sessions are regarded as an essential method to create pathways for
knowledge sharing. In addition to personal social interaction, MNCs use many kinds of
technical instruments to share knowledge: emails, intranet, and video conferences, for
example, are used on a daily basis.
The use of knowledge sharing systems has two distinctive dimensions in the studied
industries. Our findings suggest that the consulting MNCs take better advantage of virtual
interaction through instant messages and enterprise social networks, such as Yammer and
Lotus® Notes. The interviewees reveal that the consulting MNCs encourage establishing
connections through social networking tools with employees in other MNC units across their
global operations. Networking for knowledge sharing purposes in MNCs improves
efficiency because employees can reach each other better and cooperate despite the physical
distance. For example, the Norwegian interviewee at Accenture explains the value of
networking by giving an example of knowledge management tool training in a video
conference. The Norwegian interviewee did not know how to use the tool but knew a
colleague in Mexico who was able to teach him and his colleagues in Norway the basics of
the system.
In contrast to virtual meetings in the consulting MNCs, personal social interaction seems to
be a preferred knowledge sharing instrument in banking. For example, the interviewees in
the banks highlight expatriation as a mean of knowledge sharing and regard it as an essential
part of their future operations. According to the interviewed bank representatives,
expatriation is also an important bridge between the HQ and subsidiaries and helps to build a
corporate culture based on the HQ values.
Although our research suggests industry to have a greater impact on the deployment of
knowledge sharing mechanisms, culture still has some effect on knowledge sharing. For
example, regarding social interaction, the Portuguese interviewees highlight the value of
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personal meetings because as a part of their culture, non-verbal communication and gestures
tell a lot. The Norwegian interviewees signal more orientation to technology-based
communication in their answers. As the interviewee at DNB explains, they have invested a
lot in knowledge sharing systems, teaching the basic IT skills to the employees, and
simplifying language to promote connectivity and knowledge sharing.
5.2 The Impact of Industry and Culture on Social Capital
Adler and Kwon (2002) describe social capital as “a long-lived asset into which other
resources can be invested, with the expectation of a future (albeit uncertain) flow of
benefits.” Hoffman et al. (2005) suggest that social capital contributes to sustained superior
performance, because organizations with high levels of social capital have more effective
knowledge management than the organizations with low levels of social capital.
Furthermore, social capital enhances social networking and collective cohesiveness between
focal actors in the MNC, which enables “the pursuit of collective goals” (Adler and Kwon
2002: 21; cited in Gooderham et al. 2010). Our second research question observes the
creation of social capital and the influence of social capital on knowledge sharing:
2) What industry and cultural factors contribute to social capital and how does social
capital affect knowledge sharing?
5.2.1 Industry Factors
Our research identifies the structural dimension of social capital as a dominant phenomenon
in banking. The banking industry is characterized by the global MNC structure in which the
operations are integrated but local responsiveness is limited. Considering the industry, the
banking operations are well-defined due to the standard activities and products, such as
lending, current accounts, and payment transfers (Berger and Smith 2003). Moreover, the
global banking industry is a relatively new phenomenon because previously many nations
have had strict regulatory barriers to international banking. However, removal of the
regulations and advances in technology allow expansion to new markets; banks are capable
of managing and transferring larger knowledge flows than before. Modern knowledge
sharing allows also more cost-efficient risk management (ibid).
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In comparison to the banking activities, the consulting activities are more diversified due to
the dynamic business environment and highly knowledge-intensive services (Michailova and
Gupta 2005, Buono 2002: 21). Our findings support that the existing literature, which states
that the consulting industry is dependent on the knowledge and expertise of the consultants
as well as their ability to create further knowledge (Buono 2002: 21). Moreover, the
interviews with the consulting MNCs indicate that the consulting industry has accumulated
more experience in multinational knowledge sharing based on its longer presence in the
international markets. Therefore, the consulting MNCs have been able to develop social
capital to promote knowledge sharing which increases innovativeness, flexibility, and
competitive advantage. Furthermore, the existing sharing systems offer “a way to integrate
management tools like total quality management, business process reengineering and
organizational learning” (Michailova and Gupta 2005).
5.2.2 Cultural Factors
According to our research, national cultural factors do not affect the banking industry on a
large scale but there are minor occasions in which national culture of the employees may
interfere. For example, the interviewee at BES describes how hierarchy can affect
knowledge sharing negatively when the position and title of the employee is known.
Considering the PDI score of Portugal in Hofstede‟s cultural dimensions, this finding
confirms the high power distance in Portugal.
Although the US culture can be considered to affect organizational culture at IBM and
Accenture in various ways due to the country of origin effect (Noorderhaven and Harzing
2003), there are some factors in national culture which may occasionally prevail over
organizational culture. For example, although the consulting companies denote the
importance of cooperation and helping colleagues to achieve success, our research has
discovered that some employees at IBM Portugal may prioritize their own tasks and goals
before helping others. Recalling Hofstede‟s cultural dimensions and the high UAI of
Portugal, these findings are in line with the existing theory. Furthermore, it is worth noting
that Hofstede‟s theory is indeed based on the findings from the surveys with the IBM
employees, though in the 1970s.
The Norwegian interviewees did not reveal any noteworthy cultural factors that would have
a major negative or positive effect on social capital or knowledge sharing. However, we
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might consider the rather low PDI score of Norway to result in flat hierarchy which may be
supported by the low MAS score. Recalling that low masculinity in culture indicates softer
values in the organization, e.g. solidarity and dialogue in decision-making, organizational
culture in Norway is characterized by equality and flexibility. This is confirmed by the
interviewee at DNB who describes how the bank has pursued to alter the culture to become
more flexible to adapt better to the changing market trends.
With only a few findings about the effect of national culture on the organizations, we can
suggest that the cultural factors have some influence on the development of social capital.
However, it might be insufficient to conclude any pronounced statements based on our
research with a limited sample.
5.2.3 Social Capital
Due to the structural dimension in banking, the HQ exercises fairly extensive control over
the subsidiaries. Organizational culture is based on the country of origin; however, our
research does not indicate major national cultural factors in banking that would affect
knowledge sharing. Also, organizational culture in banking is somewhat similar in the
international banks and defined by the industry characteristics to a great extent. The values
of international banks consist mainly of value creation for the customer and trust and
transparency in the operations: “Trust is the product,” as expressed by the interviewee at
BES.
Our findings support the strong control of HQ in banking because the interviewees highlight
expatriation as a knowledge sharing instrument. For example, the Portuguese interviewees
emphasize the support from the HQ and more developed subsidiaries especially in the start-
up phase of a new subsidiary until the operations are well-established and stabilized. Their
operations e.g. in Africa require expatriation because the markets are risky and the level of
trust is still low due to the weak relational and cognitive dimension of social capital.
The cognitive dimension includes e.g. shared interpretations which can help to build trust
when the different MNC units understand the collective goals the same way. The interview
with Millennium bcp reveals an example of concrete knowledge sharing. As a result of
knowledge sharing and the developed cognitive dimension, the shared idea of customer
service led the bank to introduce the concept of more efficient customer service from
Portugal to their Greek operations.
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The relational dimension in social capital is still about to develop in banking and, for
example, the Norwegian interviewee at DNB explains that they have actively encouraged
collaboration through a special program. Herschel and Jones (2005) identify collaboration as
one of the key aspects to knowledge sharing, which also helps the banks to follow their
values in the daily operations. For example, the value for customer seems to be a core
element in banking and, therefore, the relational dimension of social capital can strengthen
relationships between the employees and promote sharing, knowledge creation,
organizational creativity, and performance across the operations (Choi and Lee 2002). The
interviewee at DNB gives an example of Statoil as a customer; by sharing knowledge they
can improve efficiency and the quality of service for the client.
According to our research, the consulting industry is more developed in the cognitive
dimension of social capital. The cognitive dimension is supported by the structural
dimension: the structure of consulting MNCs resembles a network organization in which the
subsidiary is more equal with the HQ. For example, Accenture does not really have a clear
HQ but rather decentralized key locations which are responsible for specific operations, such
as R&D and training. Similarly, IBM has also decentralized global units which are
responsible for certain operations, such as Global Finance or Sales and Distribution.
The consulting MNCs interact with client companies from different industries to solve their
various kinds of problems and needs and, therefore, the employees understand the value of
knowledge sharing to meet the shared objectives. The networking structure of the consulting
MNCs enhances the cognitive dimension and shared understanding about their mission. The
transfer of diversified competencies between the subsidiaries and the HQ brings a larger
resource base available for the consulting MNC and because knowledge in the consulting
industry is often in tacit format (Nahapiet and Ghoshal 1998; Clegg et al. 2010: 348), the
company has designed an organizational culture which encourages social and virtual
interaction to make the knowledge flow. Our interviews reveal that e.g. instant messages and
enterprise social network tools are widely used for knowledge sharing.
In conclusion, we have found out that the consulting industry has accumulated a longer
experience in the multinational markets and, hence, has learned to use social capital more
effectively in knowledge sharing. The cognitive dimension in the consulting industry seems
to be particularly well-established: the flexible structure of the consulting MNC helps to
spread shared interpretations and, thereby, develop trust in the relational dimension. In
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comparison to the consulting industry, the banking industry is dominated by the structural
dimension but is experiencing a structural transition and, thereby, knowledge sharing. For
example, our research reveals that there have been recent investments in upgrading the
knowledge sharing systems and altering their organizational culture towards a more flexible
structure.
Due to increasingly internationality and expansion into new markets in the banking industry,
there might be significant developmental steps also in the cognitive and relational
dimensions in the future. Because social capital may lose its efficacy over time due to the
industry changes, the banking MNCs should renew and reconfirm their social capital
periodically (Adler and Kwon 2002).
5.3 Knowledge Governance Approach
The Knowledge governance approach, KGA, is an emerging theory about knowledge
governance mechanisms which describes the intersection of knowledge and organization
(Foss 2006; Gooderham et al. 2010). The theory seeks to act as a way to match knowledge
transactions and knowledge governance mechanisms by "using economic efficiency as the
explanatory principle" (Foss 2006). Our third research question studies the differences in the
use of knowledge governance mechanisms between the industries:
3) What are the differences in the use of knowledge governance mechanisms between
the banking and consulting industries?
5.3.1 The Differences in the Use of Knowledge Governance Mechanisms
Our findings suggest that market-based mechanisms are seldom applied because they are not
regarded as the most efficient way to promote knowledge sharing. The interviewees in the
banks do not mention any market-based mechanism in their operations.
Also, the consulting units in Portugal do not refer to any market-based mechanisms in the
interviews. In contrast, the consulting units in Norway mention that they have rewarding
systems but the assessment of knowledge sharing in the systems is based on several
variables, such as quality.
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Regarding the hierarchical mechanisms, the banking industry relies more on hierarchy than
the consulting industry. The global MNC structure in the banking industry makes the
knowledge transfer process relatively one-sided because the HQ transfers often more
knowledge to the subsidiaries than vice versa. One-sided knowledge sharing may cause the
dependency of the subsidiary on the HQ: for example, the interviewee at BES describes the
subsidiaries as autonomous i.e. they are not completely independent.
The consulting industry uses hierarchical mechanisms only to keep the knowledge resources
manageable in the large MNC. As explained by the interviewee at IBM Portugal, the rules
and standards in knowledge sharing clarify processes and increases efficiency in every
department. When e.g. reports are in a standard format, the management is able to interpret
them more easily and, thereby, can devote time and resources on value-adding projects.
Social mechanisms in banking are still in a developmental phase. So far the banks seem to
rely on the basic social knowledge governance mechanisms to promote knowledge sharing.
Such basic mechanisms can be e.g. self-development by providing a document library or e-
learning opportunities to the employees. Another kind of a social knowledge sharing tool can
be personal meetings. For example, by sending a HQ representative to train the employees in
the subsidiaries may be regarded as an acknowledgement from the HQ‟s side: the subsidiary
is important to the MNC and the HQ actively aims at developing the relations and
collaboration with the subsidiary. Our research gives examples both from Norway and
Portugal: DNB managers from the HQ may participate in training sessions in the subsidiaries
and encourage learning and developing skills by socializing with colleagues. Thereby, the
employees do not have to create all knowledge from scratch.
The Portuguese banks acknowledge the importance of subsidiaries by arranging the regular
strategic meetings in a cyclical order in each foreign unit. Furthermore, they foster team
spirit and belongingness by doing non-work-related activities which provide often self-
developmental aspects for the employees.
In comparison to banking, consulting uses more developed social based mechanisms. For
example, acknowledgement at IBM can be done with a virtual “thank you ribbon” which
expresses gratitude to colleagues and is visible also to the supervisors. Furthermore, due to
their presence in a number of countries, the consulting MNCs encourage e.g. the use of
instant messages and virtual communities to cooperate and network with colleagues in other
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MNC units. Regarding knowledge sharing in virtual communities, the organization must
have developed many elements of social capital, such as “social interaction ties, trust, norm
of reciprocity, identification, and shared vision and language” (Choi and Lee 2002). Even
then, the challenge of voluntary knowledge sharing remains: willingness to share may not
always be a top priority for everyone. As already outlined in paragraph 5.2.2 about cultural
factors, national culture can sometimes become a dominant factor in certain knowledge
sharing cases and interfere collaboration when the employee might be passive in helping
colleagues.
All in all, the differences in the use of knowledge governance mechanisms between the
banking and consulting industries are basically defined by the MNC structure. The banking
industry is more attached to the hierarchical mechanisms because the structure requires
relatively extensive control by the HQ. The consulting industry has also some hierarchical
mechanisms in use to keep operations manageable but the greatest focus is on the social
mechanisms. The market-based mechanisms are hardly applied in banking and seldom in use
in consulting too.
5.4 Managerial Implications
This thesis studies social capital and knowledge sharing mechanisms and we think our
research can give distinctive implications to business management. This section pursues to
explain the learning outcomes for the practical business management.
Our thesis relies on primary data to a great degree which we have collected from in-depth
interviews with the banking and consulting MNC representatives in Norway and Portugal.
Due to the semi-structured interview method, the interviewees were able to give many
practical insights into knowledge sharing in their industries. Because we have used real
cases, the learning outcomes might first and foremost benefit the Norwegian and Portuguese
businesses. However, because our findings suggest only minor impact of national culture on
social capital and knowledge sharing and greater impact of industry, the thesis could in
general offer implications for any banking or consulting MNC.
75
The secondary data sources constitute primarily of academic journals. We have studied
social capital and knowledge sharing by combining findings from the existing literature to
create a research model that can be used in a comparative analysis on service industries.
Based on our research, we present the following key implications for business management:
1) Virtual interaction as a complementary tool to personal social interaction
Personal social interaction is a preferred way to share knowledge in many occasions but our
findings especially from the consulting industry support an increasing use of virtual
interaction in the MNC. When the company has units in several countries, virtual
communities can contribute to the overall cost-efficiency. As a result of virtual communities,
the company can achieve e.g. substantial cost savings when traveling to the same location is
not necessary. Also, working efficiency can be improved when the employees have access to
the material and colleagues available to help.
However, it is important to consider the restrictions in the use of virtual communities. First,
trust is still a key element in knowledge sharing and sharing crucial knowledge online with
colleagues the employee may have never met in person could become an issue. Therefore,
virtual communities can work better when there is an established personal connection
between the members of the community. Second, the context matters in knowledge sharing.
For example, if the employee was working on a project with possibly significant effect on
profitability, the MNC management might require closer personal social interaction and
advise to use virtual interaction as a complementary tool to share knowledge. Also, in long-
term projects personal social interaction may result in a better outcome.
Besides the use of virtual communities in knowledge sharing, we have another implication
for business management regarding social capital:
2) Frequent renewal of social capital to ensure efficacy
Management of social capital is not to be taken as granted but the MNC management must
evaluate the dimensions of social capital constantly. According to Adler Kwon (2002), social
capital may lose its efficacy if not reconfirmed periodically. Hence, the multinational banks,
for example, should consider if the hierarchical dimension is the most effective dimension to
apply in knowledge sharing. As banks expand to new markets and increase their knowledge
databases, developing the cognitive and relational dimensions of social capital could become
76
necessary. Finally, the MNC management should understand the true value of social capital.
Too many times social capital is perceived only as an abstract concept. However, as stated
by Hoffman et al. (2005), high social capital leads to a higher knowledge management
capacity.
5.5 Suggestions for Future Research
As explained in Chapter 3, we have developed the following propositions to stimulate
discussion around future research. The first proposition addresses the grounds for knowledge
sharing.
Proposition 1: Industry is more important in determining knowledge sharing mechanisms
than culture.
The findings of this thesis support this proposition: it is indeed the case in the banking and
consulting MNCs which we have interviewed. The differences in knowledge sharing
between the industries are greater than the differences between the countries. However,
because our research has a limited sample, it might be necessary to conduct more detailed
research about the effect of certain cultural dimensions. For example, in the case of Norway
and Portugal, the focus could be set on the dimensions with remarkably wide gaps, such as
Individualism, Masculinity, and Uncertainty Avoidance.
Furthermore, although our research suggests that industry has a greater impact on knowledge
sharing, there is need for research in service industries other than banking and consulting. It
could be that e.g. telecommunications and airlines are more sensitive to cultural
characteristics than industry characteristics.
Our second proposition denotes the use of social capital:
Proposition 2: The use of social capital in knowledge sharing varies significantly between
the banking and consulting industries.
Based on our research, there is no evidence for a significant variance but rather moderate
differences in composition of the dimensions. We suggest that service industries do use
social capital differently due to the industry and cultural conditions. However, more research
77
could be done to identify the specific factors which determine the use of social capital in
banking and consulting and if e.g. a change in the MNC structure would affect the use of
social capital.
Moreover, with our qualitative research we have identified that market-based mechanisms
are hardly in use while hierarchical and social knowledge governance mechanisms are more
common. A quantitative research could be needed to measure the shares of the different
knowledge governance mechanisms in the banking and consulting industries.
The final proposition of our thesis discusses the role of social mechanisms:
Proposition 3: The role of social mechanisms is greater in consulting than in banking.
Our findings support this proposition. The activities in banking are more standardized and
require less acknowledgement and self-development to promote knowledge sharing. In
contrast, the consulting industry is more dependent on diversified knowledge and expertise
because the business is related with creativity, creation of new knowledge, and problem
solving. Therefore, knowledge sharing encouraged through social knowledge governance
mechanisms could be a more powerful tool than e.g. hierarchical mechanisms used in
banking.
However, as we have discussed in this thesis, the banking industry seems to be in a transition
due to the growth in the international market. Studying the effect of industry changes, such
as increasing internationality, on social knowledge governance mechanisms could be an
interesting and important topic for future research.
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6. Conclusion
The purpose of this thesis is to study the mechanisms used by service MNCs to promote
knowledge sharing across their operations. The scope of this study covers knowledge sharing
mechanisms in banking and consulting. More specifically, we focus on the role of social
capital in knowledge sharing. The thesis is qualitative in its nature and uses semi-structured
interviews to conduct empirical research. We have interviewed three banks (DNB,
Millennium bcp, and BES) and two consulting companies (IBM and Accenture) in Norway
and Portugal.
Knowledge management is a systematic process which improves the way information is
organized and managed in MNCs (Herschel and Jones 2005). Knowledge sharing is an
essential part of knowledge management and consists of activities of transferring and
disseminating knowledge from one actor to another (Lee 2001). Knowledge intensive MNCs
are found to support and develop knowledge sharing systems actively because the companies
have recognized the importance of an efficient knowledge sharing system (Geisler and
Wickramasinghe 2009).
Our research reveals that the value of knowledge sharing is understood rather well in the
banking and consulting industry. The companies interviewed in this thesis all work actively
to maintain and improve knowledge flows across their operations. Knowledge sharing in
banking and consulting is implemented through similar technical systems. However, the
consulting industry uses more virtual interaction tools while the banking industry regards
personal social interaction necessary to the development of trust and ultimately knowledge
sharing.
Social capital originates from the behavior and interaction of individuals and groups.
Personal relationships established over time create a basis for networking which helps to
build further trust. As a result of the unique social networks, MNCs can support collective
actions and make knowledge sharing more fluent (Nahapiet and Ghoshal 1998).
Our findings suggest that the consulting industry is more developed than banking in terms of
social capital. While the banking industry is characterized by a well-established hierarchical
dimension, the consulting industry signals a stronger cognitive dimension and, thereby, more
developed relational dimensions as well. The more developed cognitive dimension (e.g.
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shared interpretations) and relational dimension (e.g. trust and norms) in the consulting
industry could be a result of a longer presence in the multinational markets. The banking
industry is in transition and about to grow globally (Berger and Smith 2003) which might
ultimately require renewal of social capital in MNCs (Adler and Kwon 2002).
Knowledge governance approach (KGA) is a theory consisting of three types of
mechanisms; market-based, hierarchical, and social mechanisms. The theory presents the
knowledge governance mechanisms as a way to affect knowledge sharing e.g. by fostering
cooperation. Cooperation may not only make knowledge sharing more efficient but can
strengthen shared values and understanding of the collective goals (Nahapiet and Ghoshal
1998; Foss 2006).
The objective of this thesis is to identify the most effective knowledge governance
mechanisms in multinational banking and consulting industries. Our findings suggest that
the banking industry uses primarily hierarchical mechanisms in knowledge sharing. In
contrast to the hierarchy in banking, the consulting industry favors social mechanisms due to
their network organization structure. Based on our empirical research, the market-based
incentives are not widely adopted and reasons could be derived from the literature about the
usability of the market-based mechanisms. It is argued that organizational culture which
supports learning and sharing through non-financial incentives leads to more sustainable
knowledge sharing (Evans 2003; Currie and Kerrin 2003).
The findings of this thesis suggest that the impact of culture on knowledge sharing
mechanisms is less than the impact of industry. We found only few examples of situations in
which national culture may prevail over organizational culture. However, the limited sample
of the study is not enough to confirm a major impact of culture. According to our research,
the impact of industry is dominant in the deployment of knowledge sharing mechanisms in
the banking and consulting industries.
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References
Accenture Norway: “Accenture Official Website.” 2013. Web. 28 Apr. 2013
Adler, Paul S. “Market, Hierarchy, and Trust: The Knowledge Economy and the Future of